A 529 College Savings Plan As A Child’s Gift

These days are exciting times for my family. Last month we welcomed a new baby. No, not me, but my sister who lives in the Bay area. Having two older sisters I didn’t expect to wait so long to be an uncle. And, my parents have been more than eager to be grandparents. So, they are thrilled! With the new baby and the holidays here, I have been struggling to figure out what kind of present to get. My sister was fortunate to have 3 baby showers (is that common?) so I think she has just about every baby accessory known. What about toys or baby clothes? Well, the new grandmother has that more than covered. I suspect this year’s purchases alone will keep here set for many years to come!

Wracking my brain, and realizing that diapers were out of the question (though those can add up to serious money over time!), I decided to go with something more practical and useful. Though boring and not as fun as going to Toys-R-Us or Baby Gap (being childless, I am not even sure where I would go), I decided on a gift that would not only help the sleep deprived parents, but also stand the test of time for my new niece, Siena. I know, not unique by any means, but I started and funded an education fund to help save for college for the first family member of the next generation. Interestingly, I was surprised by some of the “hidden” benefits of this gift.

My Gift For A Niece: A 529 College Savings Account

You are probably wondering what type of account I decided to open, right? Well, there are hundreds of sites dedicated to college savings plans out there. I particularly like SavingForCollege.com, Morningstar.com, and CollegeInvest.org for reviews, ratings, and details. To spare you the minutia of the various accounts such as UTMAs, UGMAs, Roth, pre-paid tuition, etc. that are available, I’ll just tell you that I chose a 529 because of the flexibility, favored tax treatment, and higher contribution limits. You can use the funds in this account for both a traditional school or for accredited online degree schools and colleges. Specifically, even though my niece’s family lives in California, I chose the Nevada 529 managed by Vanguard. And, the reasons for doing so were pretty clear to me.

Nevada’s 529 is a top ranked program with very low costs (lower cost means that you make more) and low minimums to get started (depending on which plan); it’s managed by a very reputable and ethical firm with solid investment returns (Vanguard), and has the investment flexibility for me, since I will manage it for my niece, which is altogether another benefit! Notice that I did not simply choose the best option based on performance because as they all say, “past performance is not indicative of future results.” I think that having the best of what I can control (costs, management, flexibility, access, and so forth) is what’s most important. The rest should fall in place. If you’re interested, check out the details of this plan here. Now here are some comments made about the Nevada plan by a top financial author, Liz Pulliam Weston:

Nevada 529 College Savings Plan Details

• Plan: The Vanguard 529 Savings Plan
• Open to: All
• State tax break for residents: None
• Manager: UPromise Investments
• Costs: $20 annual fee on accounts below $3,000
• Expenses: Annual asset management fee included in the expenses for underlying investments of 0.6% to 0.81%
• Comments: A Morningstar favorite, this plan is run by UPromise but uses thrifty Vanguard funds. Twenty different investment options give contributors plenty of choices.

Benefits of a 529 College Savings Plan

Luckily for me, I’ve been around the financial industry for a while and have helped set up plans for other people in the past. As someone who has the technical knowledge to do so, I’ve long realized that new parents really just want to focus on that — being new parents. They really do not want to be bothered with setting up life insurance or a college fund –- at least not right away. So by helping my family out with this financial matter, I realized that I was crossing another task off my sister’s ever increasing list and giving them the gift of time. I am sure any of you with newborns can attest to needing more time. Surprisingly, having told my sister that I would do this, she was very grateful: not because of the financial aspect but because it is one less thing that she and her husband would need to do. As a non-parent, I had no idea.

To add to this, I decided it would be nice to hit up the grandparents and other family members for a contribution (don’t tell my sister, she doesn’t know yet) to get it going. Wow, ancillary benefit #2. Not only am I handling the account set up, choosing investments, funding it, etc., but I am asking for contributions on their behalf. Since I am asking others to contribute in their behalf, I am assuming that I am helping my sister and brother-in-law avoid a somewhat uncomfortable conversation. I happen to love gifts that are beneficial to more than one person. In this case, it obviously benefits my niece. But it also serves to take the current time burden off the parents, and lessens their future financial obligations.

Oh, and one last benefit. If Siena chooses not to go to college or receives a full scholarship to Harvard, I can change the beneficiary to someone else in the immediate family! All in all, this may not be the most glamorous or nifty gift this year, but it’s one I hope they appreciate for many reasons and many years to come. Guess I should get busy wrapping my actual gifts for this year!